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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Which of the following contingencies should generally be accrued on the balance sheet when the occurrence of the contingent event is probable and its amount can be reasonably estimated?

Chapter 4, Problem 8MC, Which of the following contingencies should generally be accrued on the balance sheet when the

To determine

Identify the contingencies that must be accrued on the balance sheet if the occurrence of the contingent event is possible and its amount can be estimated reasonably.

Explanation

Loss or gain contingencies:

  • On the balance sheet date, certain events can create uncertainty as to probable losses or gains that the company can acquire if some future event happens or fails to happen and these are referred as loss contingencies or gain contingencies.
  • Loss or gain contingencies may be recorded in the company’s’ financial statements or disclosed in the note.

Justification for the incorrect option a:

Both gain contingency and loss contingency are “generally accrued on the balance sheet if the occurrence of the contingent event is possible and its amount can be estimated reasonably” is an incorrect option.

Justification for the incorrect option b:

Gain contingency is “generally accrued on the balance sheet if the occurrence of the contingent event is possible and its amount can be estimated reasonably” and loss contingency is “not generally accrued on the balance sheet if the occurrence of the contingent event is possible and its amount can be estimated reasonably” is an incorrect option.

Justification for the incorrect option d:

Both gain contingency and loss contingency are “not generally accrued on the balance sheet if the occurrence of the contingent event is possible and its amount can be estimated reasonably” is an incorrect option...

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